Inflation and Financial Depth

There is now a substantial theoretical literature arguing that inflation impedes financial deepening. Furthermore, it has been hypothesized that the relationship is a nonlinear one, in that there is a threshold level of inflation below which inflation has a positive effect on financial depth, but above which the effect turns negative. Using a large cross-country sample, empirical support is found for the existence of such a threshold. The estimates indicate that the threshold level of inflation is generally between 3 and 6 percent a year, depending on the specific measure of financial depth that is used.
Publication date: April 2001
ISBN: 9781451846416
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Inflation , Inflation , Financial Depth , rate of inflation , rates of inflation , effect of inflation , monetary economics , Financial Institutions And Services , General Financial Markets

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